Category: Family

RIGHT OUT OF THE GATE: This blog/website and all its content is designed and produced for information purposes only. No representation is made to guarantee the accuracy of any of the content contained on this website, nor should it be interpreted that specific investment recommendations are being made. The reader assumes any and all risk for strategies which are acted on.

In last week’s first installment of our six steps to six figures, with at least six advantages, I wrote in detail about how to go about summarizing your income and expenses.

Yeah, I know that wasn’t exactly a hoot in terms of entertainment value, but it’s a must if you expect to proceed intelligently with personal money management.

Now, we will delve into Step 2 – putting together a budget. What precisely does budgeting mean, for our purposes? Well, the best way to explain it might be like this: Last week, we deduced where your money is going. This week, we will determine in advance where it’s gonna go.

Over-simplification? Perhaps. But when it comes right down to it, only you are in control of where your money goes. What it’s spent on, or where and how much is saved, is decided by no one else. So if you care enough to read this blog and get some suggestions on how to go about controlling all of this, why not go the distance and actually implement these techniques?

Looking back at the numbers you arrived at last week, in which of the following categories do you fall: A little money left at the end of the month, or a little month left at the end of the money? Let’s consider each scenario, and lay out an example budget:

Some extra money available: Good for you! It means at the very least that your income is satisfactory for your current lifestyle and your spending isn’t ridiculous. But it doesn’t mean you can’t drastically improve your situation (yes, I used a double-negative. I find them handy on occasion. Please don’t bother the writing police).

Are you saving any money on a regular basis? If not – and we will discuss why this is so vital in future posts – you’re going to remedy that here and now with a commitment to save at least an amount equal to your current monthly surplus. For example, if your monthly net income is $2,500 and your expenses added up to $2,300, you’re going to put at least $200 into savings (or investing) monthly. You will do this first, preferably automatically via a payroll withdrawal conducted by your employer, with the money transferred directly to your savings or investment account of choice.

Making this automatic is more efficient, and it reduces the chance that you will blow off this step in favor of the $229 dress at Forever 21 that you believe makes you look hot and is on sale for $179. Don’t get me wrong… people need clothes and I like to see folks dressed up, but there should be a category in your budget that this fits into – pun intended. And honestly, $179 will buy you a whole friggin’ wardrobe at Ross.

So we have our $200 set aside for savings, and the next step is to total up our fixed expenses – rent, car payment, cellphone bill, gym membership, etc. – because these are (usually) constant and unable to be significantly altered. When we have that figure (let’s say it’s $1,500), we add it to the $200 and what’s left is for our monthly discretionary spending.

Discretionary, or variable expenses, are things we pay for that cost us different amouns each time. Food (groceries and eating out), gasoline/car maintenance, utility bills, entertainment costs, and we will also include a miscellaneous category.

The last step is just a matter of attempting to spend less than the $800, so we can add to our $200 monthly savings total. If we spent, for instance, $300 on groceries and $300 on eating out, might we able to drop that $300 restaurant cost to $240 or $250? Seventy-five dollars a week for groceries (this includes toiletries, pet supplies, and anything else bought at the grocery store, not just food) seems reasonable. But $10 a day eating out might be excessive. Perhaps you could commit to giving the fast-food dollar menus a longer look and reduce that overall cost to $8 a day. Do that and you just gained $60 more for savings.

What about your cellphone? Do you need unlimited data, or might you be able to go on a cheaper plan and be just as connected? That gym membership… are you going regularly? Can you change your routine to allow for exercising at home and eliminate it? Go to Starbucks a lot? Could you taper that back a little, being that it’s at least $4 a pop (just three “coffee breaks” a week is $50 per month. Small changes can really make a difference). Find that extra $40 of savings somewhere, and combined with your cutback on eating out, you can boost your monthly savings up more than 30%, or another C-note.

Spending more than you make: The difference between this scenario and the first is that instead of choosing whether you want to decrease costs in order to save more, you HAVE to cut costs just to save anything at all. This is where discipline comes in – you have to want to improve your financial life, long-term. Bypassing instant gratification – at least some of the time – is crucial to accomplishing more important goals, short- and long-term.

Let me take a quick detour, briefly, to talk about discipline. I’m telling you right now: If you’re looking for a way to get ahead and be smart without sacrifice or discipline, your wasting your time on this site. I can and will coach you, if you’ll have me. I enjoy passing along my decades of experience to folks who can benefit via a much quicker learning curve than I had. But EVERYTHING worth having comes at a cost. Are you willing to pay it?

Last spending category I didn’t yet get specific with is “miscellaneous.” The definition of this category, quite simply, is any expense that doesn’t fall into one of the other categories. Clothing, for example, falls into this slot. I suggest you put entertainment there, too, but the main point is to be reasonably frugal across the board. It’s not a crime to go the movies, of course, but consider going to a matinee and saving as much as $6 per ticket. It’s that type of thinking you should be willing to attempt in order for this process to truly be effective for you.

To practice sound budgeting fundamentals, never let your miscellaneous costs exceed your savings commitment. That simple practice will make it less likely that you spend on non-essentials.

OK, one last reminder – no, two reminders – as you put together your budget. First, figure every cost into this. Do you like stopping at AM-PM to buy those new Reese’s white chocolate peanut butter cups? Me, too. Best damn things since deep-fried raviolis. But figure the $3 a week you spend on them into your costs. Be detailed and thorough, if you really want this to work you.

Secondly, stick with your commitments. Adjustments can be made, but not on the fly. Say you under-estimated your gasoline cost by $30. No problem, but find that $30 somewhere else in your budget. Do NOT automatically reduce your savings allotment to accommodate your lack of foresight.

The savings commitment you have made should only go up, never down… even if you have to skip those peanut butter cups for a while.

Thanks for reading.

For more specific information on DPWLI and related strategies, please go to www.spwealthadvisors.com, and let them know that you were referred to that site via www.buildwealthearly.com.

DISCLOSURE: If you decide to purchase a product(s) from spwealthadvisors.com, I will qualify for an affiliate commission.

RIGHT OUT OF THE GATE: This blog/website and all its content is designed and produced for information purposes only. No representation is made to guarantee the accuracy of any of the content contained on this website, nor should it be interpreted that specific investment recommendations are being made. The reader assumes any and all risk for strategies which are acted on.

In the previous installment of the new-and-improved BuildWealthEarly.com, I laid out the six primary steps to accelerating the process toward reaching six figures of net worth in the shortest time that’s reasonable.

So now it’s time to begin dissecting the specifics of each step, starting with No. 1 – SUMMARIZE YOUR INCOME AND EXPENSES.

Although this appears to be a pretty straight-forward task, there’s more to it than just adding up your pay and out-go. We want to be detailed when we do this, because we will refer back to it over the course of other steps, primarily in the area of attempting to cut wasteful spending.

First, let’s determine our income. For most millennials, income is limited to a job. How much are you paid? For our purposes, we want monthly numbers rather than weekly or semi-monthly. Why? Because the vast majority of expenses are paid out monthly, and when we put these figures side by side, it’s easiest and most effective if we’re comparing grapefruit to grapefruit.

I will assume that at least some of you may be asking, “but what if I’m paid weekly?” It’s not important to get your income total right on the nose, as long as it’s close. If you are paid weekly, for example, you will receive a paycheck four times in eight different months, and five in the other four months per year. So for the sake of consistency, you can take your weekly numbers and multiply by 4.3. This will give you an average monthly number over the entire course of a year, and that’s sufficiently accurate for our purposes.

An alternative to dealing with the weekly-pay dilemma is to simply assume just four paychecks per month for budgetary purposes, and in those four months during which you receive a fifth check, you can choose to ratchet up your savings or debt elimination. Treat those like mini-windfalls.

The same principles hold true to being paid every other week – you will occasionally receive a third check, but for the purposes of accurate info, simply multiplying by two will give you the monthly income total needed.

In compiling these numbers, you will need gross pay and net pay, as well as ANY other steady income sources. If you rent a room in your home to a friend, for example, and he/she pays $300 per month, that is absolutely income that you count towards your monthly total even if you tend to immediately turn around and hand it to your landlord or mortgage company.

We note the gross pay because we want to have a starting point in reviewing the deductions from our pay each check. You should verify these and understand not only what the deductions are for (taxes, medical, social security, etc.), but be prepared to assure they are correct. If necessary, get a sit-down with a representative of Human Resources. It’s also good to know what’s being taken out in taxes, and how your most current W-4 form is filled out so that you can adjust if necessary depending on if you’re receiving too much of a tax refund annually, or worse, you’re paying additional taxes come every April 15. The latter scenario is uncommon, but certainly possible and avoidable.

Net pay, also commonly referred to as take-home pay, is the magic number that determines how much spendable income you have available monthly.

With expenses, there are two broad categories — fixed, and discretionary. Fixed expenses are those which are the same, or virtually the same, every month. Rent or mortgage payments, car payments, cellphone bills, and gym membership fees are examples. Discretionary expenses are those that change significantly every month, such as food (it’s wise to separate groceries from eating out when compiling these costs), gasoline, utilities, clothing, and entertainment.

You need to separate any and all expenditures into one of these two categories, and by all expenditures I’m referring to everything from rent and car payments to gourmet coffee to your breath mints. You don’t need a separate line in your summary for LifeSavers, but the mints are part of your grocery bill and should be included in the monthly total you dedicate to Ralphs, Vons, and Stater Bros., etc.

We separate fixed from discretionary because the former are expenses that you cannot easily change or eliminate. Discretionary spending, on the other hand, is simpler to manipulate for your fiduciary benefit. It’s pretty difficult to reduce your rent (good luck with that!), but quite doable to choose to walk or bicycle more and, thus, reduce your monthly fuel expense.

To ensure reasonable accuracy for listing your expenses, I suggest using the last three months’ of records – whether an on-line banking summary, credit card transactions summaries, hard-copy bank statements, or a combination of all. If Christmas season falls during the prior three months (as it does at this particular writing), skip December (or November if you’re a proactive Christmas shopper), and utilize the surrounding three months. Mark down all your expenses in both categories over this time frame, by month, and then average the three totals for each category to arrive at a fairly reliable monthly average.

Once your totals for income and expenses are laid out, simply compare. If you are earning more money than you’re spending, it means you have some left-over funds that you should be dedicating toward saving, or debt elimination, or perhaps both. And, as previously alluded to, you can attempt to decrease discretionary spending to give you even more money to work with each month.

If you’re spending more than you make, knock it off already! In order to make this entire process beneficial, you have to be willing to cease bad habits… and spending more than you make tops the list. Get rid of all the credit cards in your wallet, at least temporarily, and use only your debit card for purchases, which will prevent you from spending money you don’t have (literally, but not in terms of budgeting – that onus is on you).

Now that you know where you stand in the most basic sense, we can figure out how to begin “paying ourselves first,” and otherwise create wealth-building money habits. We’ll go into that line of thinking in next week’s post.

Once again, I thank you for reading.

For more specific information on DPWLI and related strategies, please go to www.spwealthadvisors.com, and let them know by any communication you choose that you were referred to that site via www.BuildWealthEarly.com.

DISCLOSURE: If you decide to purchase a product(s) from spwealthadvisors.com, I will qualify for an affiliate commission.

RIGHT OUT OF THE GATE: This blog/website and all its content is designed and produced for information purposes only. No representation is made to guarantee the accuracy of any of the content contained on this website, nor should it be interpreted that specific investment recommendations are being made. The reader assumes any and all risk for strategies which are acted on.

Last week, I introduced to you the revised focus of this website… which consists of a personal financial gameplan centered on Dividend-Paying Whole Life Insurance (DPWLI).

Now it’s time to lay out how I will detail this information, which will be formatted as six posts, explaining in specifics how to go about each of the six steps to achieve six figures of net worth. I’d love to be able to announce that you can accomplish this six times faster than with traditional strategies, but there are two reasons that would be a false claim.

For one, the notion of six times faster than about 42 years — the timeframe from age 23 to 65 that many adults spend as income-earning professionals — would mean that I can get you to $100,000 in seven years. Some might achieve that milestone in such short order, of course, but there’s no way I would propose to assist the masses in doing so. Sorry, but this is about keeping it real.

Secondly, it would imply that “normal” or accepted methods of saving and investing typically buoy people to six figures. I’m not sure that’s so, thus any claim related to that, including a comparison, would be moot.

Are ya with me so far?

I mentioned six advantages in the headline of this post. In fact, there are more than six, but in the interest of being consistent the half-dozen are: safety, liquidity, rate of return, tax-advantaged, living benefits, and a death benefit.

OK, without further adieu (and that’s as French as I get), here are the six steps with a brief explanation of each:

1) Summarize all your income and expenses. Yeah, I know… this sounds painful, and boring as hell. But it’s a must if you’re going to do this correctly. Whether you do it on a computer, or you sit down with a pen and a legal-sized yellow pad, you need to be willing to account for all your net income (take-home pay, income from rent or other sources) and your monthly payments to others.

The idea behind doing this is two-fold: A) Determining how much income, if any, that you have monthly to dedicate to saving/investing, and B) Form strategies on effectively cutting your current spending in order to increase A.

2) Establish a budget. The dreaded ‘B’ word. Let me make something clear from the get-go. There are certain financial authors (should I cite any specific examples, David Bach?), who will claim you can engage in savvy personal finance without a budget. I’m not entirely sure what is meant by that — and I’ve read The Automatic Millionaire twice (it’s mostly a very good read) — but any strategy that doesn’t decipher income vs. expenses is either ill-advised or is wasteful of available resources, or both.

The need to be overly specific can be debated, but you have to not only know where your money is going and coming from, but also be willing to adjust based on those numbers for your own long-term benefit.

3) Begin ‘Paying Yourself First.’ This simply means that you dedicate x amount of money per month to saving/investing BEFORE you start paying bills and everyday expenses. It’s the one piece of personal finance advice that, I believe, is universal.

In other words, EVERY so-called guru, expert, author, blogger, and wanna-be seems to agree on this principle. So should you.

4) Eliminate all unsecured debt. You can never truly start the journey toward six figures of net worth until you eradicate your debt. Home mortgage debt and, in some instances, a car loan and school debt are acceptable, depending on the terms and circumstances.

Credit card debt, however, is only OK if you pay your balances in full each month, and so that is managed under expenses. If you carry a balance, even just a few hundred dollars, a top priority for you is to pay it off as fast as possible. Because if you don’t, you’re wasting money on the astronomically high interest rates. And even if you’re taking advantage of a low (0%?) promotional APR, it’s temporary and still interferes with saving and investing. It limits your ability to EARN interest rather than pay it.

5) Open a DPWLI policy. A plethora of benefits, living as well as the other kind, and advantages over conventional strategies await you.

6) Borrow against your accrued cash value to buy a home. Personal finance, like a typical college’s curriculum, has several stages… from introductory to intermediate to advanced. Buying your first home often represents the culmination of a successful completion of fundamental financial principles.

And soon, you might be able to tap your resources for a car purchase… eventually, it will make sense for you to do so as you learn to take full advantage of the features of your DPWLI policy. But we’ll get into that soon enough.

Meanwhile, in next week’s post we will break down Step 1 — exactly how to go about determining your income and expenses, and begin the process for using that information.

Until then, as always, thank you for reading.

For more specific information on DPWLI and related strategies, please go to www.spwealthadvisors.com, and let them know by any communication you choose to commence that you were referred to that site via www.buildwealthearly.com.

DISCLOSURE: If you decide to purchase a product(s) from spwealthadvisors.com, I will qualify for an affiliate commission.

My son is the worst about it of anyone I know. You’d think that, being his old man writes about smart money management on a regular basis, he would be averse to such bad habits. Nope. Instead, he swipes or inserts his debit card to pay for things… and whatever balance his bank shows in his account at any given time – if and when he bothers to check – must be correct.

This folks, is referred to as money management on auto-pilot. It’s not recommended.

In a neo-technical society, automation can be a great thing. Banking apps are all the rage – just snap a photo of the check you want to deposit, complete a couple of clicks, and just like that you have made a deposit. No need to venture out and walk up to an ATM, deal with a drive-thru, or (perish the very thought of it!) stand in line inside a branch.

But often, people confuse utilizing modern-day tools to assist noble efforts with a hands-off approach that, quite honestly, is just begging for problems.

You need to be on top of your money, gang.

So here is a quick breakdown of how you can utilize automation to your benefit, and what you should be willing to take the extra time required to do just to make sure you really are engaging in intelligent money management.

Use on-line banking…

Why wouldn’t you? Like the trash-talking big guy proclaimed in the film, White Men Can’t Jump, to explain his sudden departure from the basketball court in the middle of a 2-on-2 tournament game he and his partner were dominating, “This is too easy!”

On-line banking allows you to quickly check your balance, see transactions, and the Bill-Paying feature lets you set up recurring payments on bills which are the same amount every month, such as your mortgage and car payments. You can also sign up directly with the vendor to get regular alerts for how much your bill is and when it’s due (ideal for utilities, for instance), go to your bill-pay page, and authorize payment in less than 30 seconds.

… But monitor it regularly

I go to my bank’s on-line site at least 3-4 times per week. No, it isn’t because I’m obsessed with seeing a large balance. Trust me, that isn’t applicable… not because my wife and I are poor – we’re doing fine – but because my regular bank account is used for paying bills and everyday expenses. The bulk of our assets are located elsewhere, where they can earn a respectable rate of return.

I go there because I want to safeguard against two things – errors and oversights. Errors are when someone charges you erroneously, or there is an error on the bank’s end (very rare, I have found). Oversights are when it’s my fault – a charge I didn’t remember to account for, or perhaps a subscription auto-renew that I forgot about or didn’t want.

Simply put, I want to make sure the amount of money shown in our account is what should be shown. Typically, the quicker mistakes are discovered, the easier they are to remedy.

Have your paychecks direct-deposited…

Many banks offer small incentives for agreeing to have your paychecks directly deposited regularly. The perks can be fee-free basic accounts, discounts on loan rates, small cash-back considerations, even tangible gifts. Nothing cozier than watching TV draped in a blanket with “Bank of Cucamonga” emblazoned.

Yeah, I’m kidding about the blanket. Still, it is more convenient not to have to worry about physically possessing your check, getting to the bank to deposit it or cash it, etc.

…But know what’s being withheld from your net pay and why.

Don’t trust your employer with getting it right. Be sure you concur with what is being withheld, how many hours you were credited with working, even the pay rate itself. My other son recently took a new job, only to find out that he was being paid 75 cents an hour less than he thought he was promised. And of course, he didn’t notice this until about a month in, making a correction (and retroactive reimbursement) more difficult to request and obtain.

Pay Yourself First: Have money from your check sent directly to an investment account…

One of the oldest adages in personal finance, discussed numerous times on this site. “Pay yourself first” means that you set aside funds for savings before you pay any bills or cover any other expenses. It assures you save, regardless of circumstances, which is especially critical when you are first starting out and have the maximum time to take advantage of the amazing principle of compound interest.

…And monitor your balance to assure full credit and growth

Again, don’t trust that the powers that be will get everything right. I once had a life insurance policy, for which I sent in a contribution toward what is referred to as a “payed-up additions rider,” which allows for growing your cash value more quickly provided you stay within certain parameters. The insurance company mistakenly credited the payment toward a small policy loan balance I had, that I had just taken and wasn’t yet willing to pay on.

The error wasn’t a big deal, and was easily corrected by the company, but had I not caught it, it would have ultimately cost me money in the form of lost compounding on the funds which never would have reached my desired destination.

By all means, utilize the great modern technology available to us whenever you can, and it makes sense to you. But whether you go old-school or new-tool, be “accountable” every step of the way. Pun intended.

Thanks, as always, for reading.

***

DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.

On this website, and hundreds of others like it that I read and monitor, we talk about practically anything that has to do with money/personal finance. And we should… there’s a helluva lot to cover about the subject.

But what it all boils down to, whether you’re in your 50s or half of that, is preparing for the “Big R.” What proactive steps are you taking, now and in the near future, to properly prepare for retirement?

So let me ask you, is that what we should really focus on ad nauseum?

While planning for the long-term future is certainly important, I contend that excelling in the short-term, including the ‘now,’ is at least equally vital. In fact, one often facilitates the other.

Maximizing your efficiency in saving and investing now, logically, will result in you having more money to work with later.

Let’s take a quick look at why planning for retirement has become such big business, cliff notes version. You ready? It’s because virtually all private companies have deserted the traditional pension system in favor of a 401K/IRA-led way of saving for one’s own career conclusion. And, many public and government agencies appear headed in the same direction.

Sure… just save some money with your company in its 401K, or do it on your own with an Individual Retirement Account, combine those with the scraps that are our social security payouts – assuming those rates stay where they are now – and you’ll be set. Who needs a big, fat monthly pension check when the S&P 500 historically averages a 10% annual return?

I’m tellin’ ya, it’s bananas. And yet our society has fully accepted this monumental shift in monetary focus. But what people fail to properly gauge is that, while $500,000 in a retirement account may sound like a butt-load of money, it is in fact barely enough to keep a retired couple above the poverty line.

Undoubtedly, you’ve heard that experts traditionally recommend drawing down your nest-egg at about 4% per year, so that you can live while retaining the full balance of your primary account. In other words, if you start with $500,000, and want to leave a legacy, you should take annual withdrawals from that account of no more than 4%.

Really? Hmmm… let’s see how that might play out.

Let’s say you’re an average wage-earner in the U.S., about to retire. Your household income, says Betterment.com, is about $68,000 a year gross. That’s roughly $50,000 net spendable money after taxes.

If you expect to maintain the same standard of living you’ve become accustomed to, you would have to have about $1.25 million saved. And that’s not even considering the erosion caused by inflation. At a 3 percent inflation rate, $50,000 of net spending power becomes just $25,000 in about 24 years, which is roughly the average length of retirement nowadays.

Of course, you can always sacrifice your kids’ inheritance and spend down your money – in fact, I think you should because it’s your money. But try making $500,000 last 24 years when you’re taking $68,000 withdrawals on a taxable account. According to calculators on the BankRate.com website, do that and you will be out of money in less than 15 years.

Your retirement account is a Roth IRA? Cool. No taxation on the withdrawals. But with $50,000 annual withdrawals and inflation, your investments had better return more than 14% each and every year if you expect to continue paying the bills 24 years later.

Also, we didn’t enter increased medical expenses or anything else into the equation. Scared yet? Ya should be at least nervous.

So what do we do? If we’re smart, we utilize specific strategies that take the guesswork out of money, and we start doing them now… to benefit us now, a little later, AND into retirement. We do things that allow us to live a better, smarter life RIGHT NOW and over the ensuing years, and not just obsess about what we’re going to do when we actually get old.

And I have a strategy that makes all of this relatively simple and definitively painless. Beginning in 2018, this website will be dedicated to detailing this approach and its various advantages on a regular basis. Yep… I’m going to make you wait for it.

But, if you’ve been reading this blog for any length of time, you already know what I’m talking about. DPWLI… to know what this acronym stands for, refer to earlier posts, and let me know your reaction to the suspense.

Yes, admittedly, I’m messing with my audience a little here. But teasers are good, and it won’t be long now before the info will be at your fingertips.

In the meantime… thanks, as always, for reading.

***

DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.

Wishing you a wondrous and fruitful Thanksgiving holiday from surprisingly scenic Palm Springs, Calif. My wife and I are here on a brief get-away, and please accept my apologies for being tardy with this post.

As we enter the holidays, I thought it would be prudent to briefly discuss the ‘giving thanks’ aspect of the season. I believe it’s an important subject to touch on, because many so-called personal finance ‘gurus’ talk about the importance of charitable giving as part of a savvy overall money management strategy.

I support the notion of giving to those in need 100 percent, but I am skeptical of the implications by some that you can tangibly benefit from donating to causes, worthy and otherwise.

The great thing about giving is the intangible positives you derive not only from doing so, but from being in a position when doing so generously makes sense.

Here’s the deal from my standpoint: You should always give if you want to give. You should give to whomever you wish, for whatever cause you deem just and appropriate. But it’s naive to believe that all giving is the same, and for me, getting the most out of each donation – and having the right people benefit from it – is the name of the game.

I know a great many well-meaning folks who give something to everyone, just for the asking. And I mean everybody. From the charitable trust that saves two turkeys from slaughter each Thanksgiving, instead of one, to handing a buck or two to that guy named Chuck who frequents the corner gas station in his dented-up ’93 Honda Accord, always in need of “enough gas to get home” without having even once bought so much as a dram of unleaded with what he’s given.

These people who give are generous souls, and of course it is absolutely their right to give any time they damn well please. But is it the best use of their charitable dollars and cents? Not really.

I’m not saying some charities are more worthwhile than others… well, OK, I confess I am sort of implying exactly that. You may very well disagree, and I respect that. My point is that $10 or $20 sent to, say, St. Jude Children’s Hospital (my favorite charity) or the Wounded Warrior Project (second favorite) is likely to benefit more genuinely deserving people than giving a dollar each to ten folks who are “down on their luck” and working freeway off-ramps.

For one thing, the donations to official charities are much more likely to be used toward the cause they represent. Secondly, those donations are tax deductible if you make enough of them. Helping Willie get a burger… and a beer or, worse, a fix in many cases unfortunately… simply isn’t as wise a choice.

Now, obviously, there are exceptions. There’s a gentleman not far from where I live who is a double-amputee. I see him a lot at the same intersection, and if the light is red when I arrive there, I often give him something. Yes, this contradicts what I just wrote in the preceding paragraph, but the guy has no legs from just above the knees. I figure he needs a break, and the government assistance he is getting is probably far shy of what he realistically needs to live a basic quality of life.

And, truth be told, I made sure his wheelchair doesn’t have curtains to hide underneath the seat. There are con-artists in all forms out there.

Generally, it is savvier and more helpful overall to focus on legitimate organizations. In addition to the two I named above, I like the American Red Cross, American Cancer Society, and the Salvation Army, as well as numerous others.

Before I wrap this up, I have one more point to make: If you’re young and just getting a foothold financially… the type of reader this website is geared towards… I would like to offer the following suggestion:

Don’t give to any charities – not yet, anyway.

Huh?

What I mean is, in the long run you will be able to do a lot more good and assist a great many more worthy causes if you first take care of your own situation the best you can. It’s like the oxygen mask that falls from overhead during emergencies on commercial flights. Regardless of the airline or the type of plane, the instructions for its use are always the same for folks who have children with them:

Why? Because the effort to help the child first could result in suffocation for both, if the adult passes out and the child panics.

With charitable giving, put on your own financial mask first. Make sure it is snug and secure… that way, you might be in the position to not only help the child (or other worthy benefactor) in the seat next to you, but any needy individuals on the entire airplane…

… So to speak, of course. Thank you for reading.

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DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.

Greetings, all. I’m tapping out this post from the Rio Hotel & Suites in Las Vegas. I’m here to attend a convention – so it seems appropriate to discuss what some call the “Wall Street Casino.”

Essentially, what we’re talking about is the subject of risk. More specifically, we want to ascertain why it has become common “knowledge,” that in order to get good returns, you have to be willing to take some risk.

There is some truth to that notion when you look at it from the risk perspective. There are investments out there that are highly speculative. No one knows what’s going to happen, and folks don’t even have a decent idea of what’s going to happen even if they pretend they do.

And I’m not talking about investments that have a reputation as being risky, such as options trading, day trading, commodities, or even collectibles. No, sir, I’m referring to that mainstream investment called the S&P 500 Index.

You may have heard of it.

Obnoxiousness aside, financial experts of all kinds will have you believe that investing in the stock market is the only legitimate way to earn good returns, and that if you do it right by conducting proper due diligence, diversify your portfolio, consult a professional, etc., you will most certainly be fine in the long run.

These know-it-alls love to cite that the S&P, which stands for Standard & Poor, has returned an average of about 10% annually since The Great Depression. I’ve read multiple articles on-line and in print magazines, of late, suggesting you shouldn’t be wary of the potential for a sharp decline in the market such as what we experienced in 2008 and 2009 – even though we’re nearing a record-duration bull market as I write this – because even if it does drop sharply at some point, the market inevitably comes back and then some…

Pish posh.

Folks who saw their investment account balances drop 40% or more nearly a decade ago are just now catching up. A few are showing a slight gain from pre-2008 levels, but projected as an annual return most would have been better off keeping their money under their Serta Perfect Sleeper.

And with retired people who are counting on taking an income from their investment assets, a volatile market can literally make them queasy because they’re not sure if they’re going to have enough money to do the things they want to do in their golden years.

By the way, that aforementioned 10 percent annual S&P growth is before taxes and fees, and your actual return isn’t 10% because you can only earn that if the market were to return exactly that percentage every year. We’ve demonstrated multiple times on this site how average returns are a far cry from actual returns. Here’s another quick example:

(Start with $1,000 account balance. Earn 60% the first year, lose 50% the second. Your average annual return would be 5% (60 – 50 = 10, divided by 2 years), but your actual return is a 10% annual LOSS ($600 gain first year = $1,600 in account, 50% loss the second year = $800 loss – net result is $1,000 + $600 – $800 = $800 balance in account after the second year. $1,000 – $800 = $200 loss is 20%, divided by 2 years = 10% loss per year).

Wouldn’t it be nice if there was a financial instrument in which you could store money safely, and still earn a respectable annual rate of return with virtually zero risk? How sweet to fund it and forget it, knowing that you have a better chance of being struck by lightning – twice – than of losing with that account!

Dividend-paying whole life insurance. Yes, we have introduced this product on this site, and I’ve written on it numerous times. And in the coming weeks and months, this blog will adjust its focus from a general personal finance educational approach to a site dedicated to teach as many folks as will take the time to learn, the numerous benefits of utilizing life insurance “living benefits.”

It has to be the right kind of insurance, set up by properly trained agents representing carriers who have been established for more than a century. But when you use this tool to hold your nest-egg, you will get the following: Safety of principal and gains, a guaranteed rate of return that can be even higher depending on annual dividends, a structure that legally allows you to access your funds tax-free whenever you want, and a system available by some companies (but not all) that allows you to borrow funds from your cash value – without qualifying – and yet your full cash value continues to earn returns and grow as if you never took a loan at all.

It’s all about educating people. Our public school system falls far short of any legitimate teaching about money or investments or retirement savings, so it’s up to citizens like myself who are passionate about people of all ages succeeding financially, for the short- and long-term.

Keep reading this space every week, friends. We will continue to shed light on what is not only a desirable alternative to the gambling that investing in Wall Street and the money markets is, but also a critical undertaking we need to be aware of… NOW.

Thanks for reading.

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DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.

My family and friends often give me a hard time about being frugal. When I first revealed to them that I had a personal finance blog, they asked if I had written a post yet on cheap eats or the wonderful world of coupon clipping.

It’s not that I don’t enjoy spending money, or that I’m not willing to splurge on occasion. I am, and my wife and I do. What I don’t like is feeling as if I have wasted money. Spending $500 or more on the latest cellphone, for instance, just seems like a bad investment when I can go out and obtain a perfectly functional phone – for talking, texting, and taking basic photos – for less than $100.

My adult kids, ages 27 and 24, want the fancy phones. Like the old fart in those Consumer Cellular ads, I’m happy with my basic phone.

Either way, there are numerous ways to save small amounts of money on a consistent basis… and when you do these consistently, I believe you will be genuinely surprised by how the little discounts, rebates, and cash back add up.

I do clip coupons, but I’m not obsessed. Mainly, I look for discounts on grocery brands I buy, and restaurants we frequent. I also constantly am asking for discounts. When I recently had the oil changed in my car, I requested “the best deal you can give me. Been a customer here a long time,” and got a discount for a coupon I didn’t have and was afforded an additional 10% senior discount despite being ‘only’ age 53. If I hadn’t asked, I’d have never received either courtesy,

Also, I’m a big believer in taking advantage of cash-back credit cards. The process is really quite simple – apply for and (hopefully) get approved for a credit card that offers either a flat cash-back rate for all purchases, or quarterly “specials” with as high as 5% back on certain categories, or both. The categories, usually featured for three months at a time, include restaurants, grocery stores, gas stations, or department stores among others.

The idea is to use the card each and every time you shop – for virtually all of your weekly purchases. Concentrate solely on what you would spend anyway. Don’t spend more just to utilize the card. Defeats the purpose.

Then at the end of the month, you use your checking account funds to pay off the card. You never want to carry a balance on the credit card, because you will then be wickedly guilty of stepping over dollars for dimes. After all, how much sense does it make to get 5% back on groceries, but pay 20% or more interest monthly to carry a balance for those very same trips to the store.

None, of course.

Do this right, by using credit cards as the point-of-sale tool and your bank account to pay the credit card balance in full each and every month, and those 5% purchases here, and 1.5% there (and elsewhere) start to add up nicely.

Although it certainly isn’t recommended for younger adults who are trying to establish themselves as financially healthy long-term, my wife and I like to eat out. We rarely do fancy dining, but we like Applebee’s, El Torito, Panera Bread, and the like several times a month. Currently, our Chase credit card pays 3% cash back on all our restaurant purchases (including fast food, although we don’t do much of that). Generally, in two months we have accrued enough cash that we get a dinner on Chase courtesy of a gift card to most any chain eatery we choose.

Over time, you can acquire a few cards, each of which might be dedicated to a different part of your overall budget – one for dining, one for groceries, one for gas, and one for miscellaneous. The common denominator among all of them remains paying the balances in full each month, thereby NEVER paying interest on these purchases.

It’s like earning a rate of return on your expenditures, rather than just your investments. Best of both worlds.

Thanks for reading.

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DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.

Frequently, when the subject of taxes comes up I hear people refer to their own lack of income and assets, and indicate that “any changes won’t affect me much..”

Even if the statement were true, which it almost always isn’t, that represents the wrong attitude when considering your personal finance.

Sure, many people – primarily younger adults still trying to get themselves established – lack the income and/or asset accumulation to be significantly affected by marginal tax rates and such. But it’s still a good idea to understand how the system works, and how new changes in the law compare, because eventually, such things will directly impact your bottom line.

I’m not going to attempt to go into any sort of detail in this space on the proposals recently offered by President Trump. It would take a great deal more space than is practical to dedicate here in order to do it justice.

Nor do I intend to go all political on you. Again, that’s not what this blog is for.

But I will comment on some specifics, and suggest you pay attention to them regardless of your current economic standing. NOTE: Nothing from this post, or anything else found on this website, should be interpreted as professional advice. For all things tax-related, seek the advice of a certified tax professional.

The major tone to the president’s changes elicits simplicity – purportedly, 80 percent of Americans will be able to file their taxes annually on one sheet of paper. Wow… I presume we will need both sides of the page?

The simplification in terms of tax rates is two-fold. First, the proposal suggests a low-end tax rate of 12 percent, up 2 percent, among only three levels. What… he’s raising taxes on the lowest income Americans?

Hardly. Instead, as I understand it, those who don’t make enough currently to be required to pay federal tax will still be under that line. And the aforementioned 2 percent difference will more than be made up for by a doubling of the standard deductions, for both individuals and married couples.

And some long-held itemized deductions, like for mortgage interest and charitable contributions, will remain intact. Other deductions, however, such as home office write-offs and gambling losses (currently, the law allows you to claim losses up to a maximum equal to any claimed winnings) would go by the wayside.

After the 12 percent, the other two rates are 25 percent and 35 percent, plus possibly an additional upper bracket still to be determined. Currently, the top bracket is about 39%.

Also unclear is the treatment of capital gains. Under current law, they are taxed at a cap of 15 percent – this affects you and me if you understand that, in order to get the capital gains rate on the growth of your investments, you are required to have held these investments at least for one year. If you sell stock less than 12 months after you bought it, folks, any gains are taxed as regular income. That can make a substantial difference.

It’s also important to understand that the 12%, 25%, 35% and whatever other rates are included in the new proposal are, like the current system, tiered. In other words, if your adjusted gross income is $100,000 per year, you would fall under the 25% rate. But that doesn’t mean all $100K is taxed at 25%. Instead only, the portion that falls within the 25% rate range is taxed at that rate.

So in a fictional example, you may get taxed nothing on the first $25,000, 12% for dollars $25,001 through $74,999, and 25% for dollars $75,000 through $100,000. Again, these numbers are fictional for ease of explanation, but if the above were true, your effective tax rate on $100,000 would be $5,999.88 (12% of 74,999 – $25,000) + $6,250 (25% of $100,000 – $75,000) = $12,249.88, or about 12.25%.

In the meantime, as Washington D.C. labors over tax reform and other issues, your job as an individual (or couple, if you’re married), is to pay as little in taxes as you can legally avoid.

Doing so starts with understanding the basics of how your taxes are determined… and may be perpetuated by utilizing tax-friendly strategies including (but not limited to), Roth Individual Retirement Accounts, maximum leverage on personal as well as investment real estate, and owning dividend-paying whole life insurance policies as a central part of your financial plan.

We’ve discussed the life insurance aspect in previous posts, and we will continue to explore these types of strategies in the future. So stay with me, and as always…

Thanks for reading.

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DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.

In personal finance parlance, it is known as “the B word.” And not in any sort of positive way.

Budgeting, defined as the excruciating act of creating a personal or family summary of income and expenses for the purposes of determining what can be spent and (hopefully) saved, carries such a negative vibe that some alleged PF gurus claim you can effectively manage your money without it.

Not likely…

Look, it’s really a matter of what you want to accomplish, in life and specifically when it comes to your money. Are you truly satisfied to wing it from week to week, month to month and hope you have enough to get by? Or are you willing to put in a little effort, in the boring form of crunching numbers, to improve your circumstances?

If you are among the vast majority of folks who want to make financial progress ongoing, there’s no way around some version of monetary accountability.

Still, that doesn’t mean it has to be painful… or a pain in the posterior. Budgeting is actually relatively simple, if you decide to keep it that way. Here’s how:

Know as accurately as possible your monthly take-home pay

True, determining what you make isn’t always that simple. Sales professionals who work on commission, for instance, can have a wide variation in what they make from month to month. But there are ways around this. First, determine an average income. Go back three months, six months, or whatever time-frame you believe can most accurately reflect your net pay, and come up with a “common” figure.

Obviously, if you are on salary, you simply need to take a peek at your paycheck, or observe the associated direct deposit in your bank account.

Now reduce that number by 20% for budgeting purposes. For instance, if you’ve determined that your average monthly net income is about $3,000, reduce it by 20% ($600) and work with $2,400 as you figure your budget. The 20-percent fudge factor allows for errors and anomalies while also demonstrating to you (eventually) that you can get by with less than you think. What if you only make $1,500 in a particular month… are you going to have to move back in with your parents? You may be nodding your head after reading this, but we both know you’ll do whatever it takes to avoid that scenario.

Make savings an integral part of any “spending” plan

Next take at least 5% of the $2,400 (10% is reommended), and mark it down as your monthly savings goal. Yep, do it now… this resulting $120 for socking away in our example is important – commit to it, even before you figure out what your bills are. That comes next.

Once you have your typical monthly income established, and your associated monthly commitment for savings, the next step is to mark down your fixed expenses. These are the monthly bills that are the same every month – rent or mortgage payment, car payment, TV/internet bills, cellphone bill (in most cases), loan payment to Mom and Dad, etc. It doesn’t matter what they’re for, if you pay them and they are constant, they should be included here.

Determine your expenses in two broad categories first

Now add up the total of your fixed expenses, tack on the aforementioned $120 savings figure, and come up with a total. Then, take that total and subtract it from the $2,400. The result is what you have available to spend monthly on what is referred to as discretionary spending – the costs that change every month, such as groceries, gasoline, and entertainment.

Guess what? You’re more than half finished. Not exactly bamboo under the fingernails, correct?

OK, sure, I’m not claiming this is as fun as Space Mountain on Halloween. But it’s a lot less costly.

Be willing to go back through previous spending history

Now comes a little bit of effort, because you need to go back through your on-line banking or credit card receipts, and determine how much you’ve been spending on those discretionary costs. My suggestion is that you separate them into the following categories: groceries, eating out, gasoline, entertainment, and miscellaneous.

After you have those figures determined for the last month (ideally, figure out three months’ worth of each category and average for a more accurate monthly reference), take the monthly figures and add them up. Compare to what your new budget “allows” you to spend. Analyze what you’ve been overspending on, and what you’ve been more reasonable about. Adjust accordingly. Let logic and common sense be your guide.

For instance, let’s say your discretionary spending amount that you determined from your income/fixed expenses/savings portion of the budget is $600 per month. And you’ve determined you’ve been spending closer to $900 per month. That means we need to find $300 to cut, but remember that we took your initial average take-home pay and cut it by 20 percent. That was $600 lopped off the $3,000 average monthly pay, yes?

Decide on spending cuts if needed, but you don’t have to go overboard

So whatever we determine needs to be cut, it probably doesn’t truly need to be as drastic because we padded the initial income figure by using only 80 percent of it. Are you with me?

In other words, you have some leeway… as long as you’re prepared to make some needed cuts when it’s obvious. Are you going out to the movies a lot, or do you mostly stay in and watch Netflix? How ’bout fast-food? That is the young adults’ most significant bug-a-boo, bar none. Are you on a first-name basis with the folks at Carl’s Jr.? If so, that has to change. Cooking at home typically costs a fifth of fast-food, and a tenth or less compared to eating at sit-down restaurants. How about at the grocery store? Do you buy a lot of processed and/or name-brand foods, or do you focus on produce, dairy, and generic stuff?

After you have determined all your adjustments, be sure that the first thing you do at the beginning of each month is put the savings away. “Pay Yourself First” is a universally accepted personal finance adage for assuring you save regularly regardless of your budget.

Ultimately, as long as you’re willing to do a little self-analysis with what you spend, and make some common-sense alterations, it can be pretty simple and only a little painful.

If nothing else, make a commitment to avoid high-interest debt

Last item: I could easily write 10,000 words about sensible budget decisions, cutting spending, etc. But that isn’t the point of this post. Instead, focus on the idea that getting basic organization in your financial life doesn’t have to be difficult and it truly doesn’t have to suck.

A huge take-away is this: Whatever path you go, do your utmost to stay out of debt… specifically, credit cards that – speaking of sucking – will suck the life out of any possibility of you getting ahead with your money and ultimately being able to reasonably afford many of the things and experiences you desire.

As always, thank you for reading.

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DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.